GLNG

Business Context and Reporting Period

Company: Golar LNG Limited
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Third Quarter ended September 30, 2013
Filing Date: November 27, 2013

Golar LNG Limited operates as a holding company for the Golar Group, which includes Golar LNG Partners (a master limited partnership). Following the deconsolidation of Golar Partners, the Company's standalone operating results reflect only five vessels not yet dropped down to the Partnership, while the majority of the fleet's revenue is generated within Golar Partners and reported as dividend income.

Key Financial Metrics

Note: Group-wide figures include Golar Partners. Deconsolidated figures reflect Golar LNG Limited's standalone operations.

Material Changes vs. Prior Period

• Revenue Decline: Deconsolidated operating revenue dropped to $17.0 million from $27.9 million in Q2, primarily due to increased commercial waiting time for the Golar Viking and the Golar Gimi earning no hire after mid-June.
• Net Loss: The Company reported a net loss of $13.1 million, compared to a net income of $59.0 million in Q2. This includes a non-cash loss of $8.2 million on interest rate swaps.
• Cost Reduction: Direct vessel operating expenses decreased to $16.9 million (Group) from $20.0 million in Q2, despite $3.9 million in expenses related to building the officer complement for newbuilds.
• Cash Position: Cash and cash equivalents decreased significantly to $56.0 million from $191.5 million at the end of Q2, driven by capital expenditures on newbuildings and dividend payments.

Guidance, Outlook, and Management Commentary

• Dividend Policy: The Board maintained the quarterly dividend at $0.45 per share. Stress tests indicate the dividend can be sustained without new equity even in a weak market scenario until 2016-2017.
• Market Outlook: Management expects downward pressure on charter rates in 2014 and 2015 due to excess vessel supply. However, supply is expected to tighten rapidly in 2016 as major liquefaction projects (Australia, Sabine Pass) ramp up.
• Strategic Focus:
  • FSRU Contracts: Secured a 10-year charter for Golar Eskimo with Jordan and a 5-year charter for Golar Igloo with Kuwait. These assets are candidates for dropdown to Golar Partners, which would increase distributions.
  • FLNG: Completed FEED study for Floating Liquefaction; confirmed conversion of an LNG carrier to an FSLV takes ~30 months. Targeting markets in the Americas and West Africa.
  • Financing: Concluded a $1.125 billion facility for 8 newbuilds. Secured a commitment for a sale-and-leaseback transaction for 4 additional newbuildings with ICBC Financial Leasing.
• Risks:
  • Volatility in spot charter rates and vessel utilization (e.g., Viking and Gimi offhire).
  • Delays in the Chilean FSRU project and uncertainty regarding the Douglas Channel FLNG project due to insolvency filings by a partner.
  • Exposure to interest rate fluctuations, partially hedged via swaps.

Investor Verification Checklist

• Utilization Rates: Verify the actual offhire duration and repositioning costs for the Golar Viking and Golar Gimi, as these significantly impacted Q3 revenue.
• FSRU Dropdown Timeline: Confirm the schedule for dropping the Golar Eskimo and Golar Igloo into Golar Partners to assess the timing of increased dividend distributions.
• FLNG Project Viability: Monitor the resolution of commercial issues with HN LNG Limited Partnership regarding the Douglas Channel project and the status of the Chilean FSRU contract.
• Cash Burn vs. Financing: Track the drawdown of the $1.125 billion facility and the closing of the ICBC leaseback to ensure sufficient liquidity for the remaining newbuilding program.
• Interest Rate Hedging: Review the impact of mark-to-market adjustments on interest rate swaps, which caused significant non-cash losses in Q3.